Zuckerberg vs. Cook Is More Than Just Facebook vs. Apple

I have been watching with keen interest the battle between Tim Cook and Mark Zuckerberg over privacy and the benefit of an ad-supported versus product-oriented business model.

My friend John Swartz wrote an excellent piece on this "New Tech Divide" for Barron's. Not surprisingly, companies that sell products or services make the most revenue per customer, he notes. Facebook's $26 per customer is solid, but the bulk of that revenue comes from users in developed countries; revenue per customer in places like India is much less.

While Tim Cook's comments on the importance of charging for products and services is critical to Apple's ability to protect its users' private data, he is echoing Steve Jobs' position on this subject. As Swartz points out, Jobs told Walt Mossberg and Kara Swisher in 2010 that "privacy means people know what they're signing up for, in plain English and repeatedly."

What is missed in this clash of business models is what drives advertising in general. For over a century, ads were the driving force behind newspapers and magazines, and then TV. These ads went out to everyone, and marketers hoped for the best in terms of return on investment.

Enter Google, which offered a way to deliver truly targeted ads via its contextual search engine.

But there were two catches. For targeted ads to be effective, advertisers needed to know what a person liked in order to display relevant ads they were likely to click. In the past, if an advertiser sent a mass mailing, a 1-2 percent response was a smashing success. With targeted ads, the chances of success are much higher, and a response rate of 10-15 percent is reasonable.

But for that to happen, advertisers need Google, Facebook, Twitter, and others to give them as much data as they can on potential customers.

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The second catch comes from the push by advertisers to make sure Google, Facebook, and others don't stop tracking people. Their user agreements say, in essence, "If you use our product for free, you agree to see ads, which supports this free service."

If you look at the two camps, you can see that this divide is now widening. And thanks to the Cambridge Analytic flap at Facebook, ad-supported services are under considerable scrutiny and have a lot to lose. More importantly, they must gain the trust of their users if they want to remain important companies in the future.

The bottom line is that advertising has been at the heart of all kinds of businesses for over a century and is not going away. I expect to see both Tim Cook and Mark Zuckerberg ramp up their public positions on the virtues of each business model, though Zuckerberg will probably face the most public scrutiny.

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